SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-26715
ROANOKE TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
Florida 22-3558993
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2720 N. Wesleyan Blvd., Rocky Mount, North Carolina 27804
(Address of principal executive offices) (Zip Code)
(252) 428-0200
(Registrant's telephone number, including area code)
539 Becker Drive, Roanoke Rapids, North Carolina 27870
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 14, 2004, we had
2,781,024,239 shares of common stock outstanding, $0.0001 par value.
ROANOKE TECHNOLOGY CORP.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
BASIS OF PRESENTATION
The accompanying unaudited financial statements are presented in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accompanying statements should be read in
conjunction with the audited financial statements for the year ended October 31,
2002. In the opinion of management, all adjustments (consisting only of normal
occurring accruals) considered necessary in order to make the financial
statements not misleading, have been included. Operating results for the six
months ended April 30, 2004 are not necessarily indicative of results that may
be expected for the year ending October 31, 2004. The financial statements are
presented on the accrual basis.
FINANCIAL STATEMENTS AND EXHIBITS.
- ----------------------------------
FINANCIAL STATEMENTS
For the information required by this Item, refer to the Index to Financial
Statements appearing on page F-1 of the registration statement.
ROANOKE TECHNOLOGY CORPORATION
Financial Statements Table of Contents
FINANCIAL STATEMENTS Page #
Balance Sheets F1 - F2
As of April 30, 2004 and
October 31, 2003
Statements of Operations F3
For the Six Months Ended
April 30, 2004 and 2003
Statement of Stockholders' Equity F4
As of April 30, 2004 and
December 31, 2003
Statements of Cash Flow F5
For the Six Months Ended
April 30, 2004 and 2003
Notes to the Financial Statements F6 - F15
ROANOKE TECHNOLOGY CORPORATION
BALANCE SHEET
As of April 30, 2004 and October 31, 2003
ASSETS
------
CURRENT ASSETS 4/30/2004 10/30/2003
- -------------- -----------------------------------
Cash $ 4,628 $ 18,306
Accounts receivable 28,448 -
Employee advances 18 -
----------------------------------
Total Current Assets 33,094 18,306
----------------------------------
PROPERTY AND EQUIPMENT
- ----------------------
Equipment and leasehold improvements 652,616 599,213
Less: accumulated depreciation (304,240) (279,096)
----------------------------------
Total Property and Equipment 348,376 320,117
----------------------------------
OTHER ASSETS
- ------------
Deposits 8,150 5,250
----------------------------------
Total Other Assets 8,150 5,250
----------------------------------
TOTAL ASSETS $ 389,620 $ 343,673
==================================
The accompanying footnotes are an integral part of these financial statements.
F1
ROANOKE TECHNOLOGY CORPORATION
BALANCE SHEET
As of April 30, 2004 and October 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 289,936 $ 322,411
payroll tax and penalty payable 831,189 782,693
Employee loan - 5,090
Loan from officer 299,167 -
Current maturity of long-term debt 162,274 164,421
----------------------------------
Total Current Liabilities 1,582,566 1,274,615
----------------------------------
LONG TERM LIABILITIES
- ---------------------
Long term debt 270,807 270,807
Less current portion of long term debt (162,274) (164,421)
Debenture bond principal 393,003 393,003
----------------------------------
Total Long Term Liabilities 501,536 499,389
----------------------------------
TOTAL LIABILITIES 2,084,102 1,774,004
----------------------------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock, $.0001 par value
Authorised:10,000,000
Issued and Outstanding: None - -
Common Stock, $.0001 par value
Authorized: 5,000,000,000
Issued: 1,294,151,286 and 494,151,286, respectively 129,415 49,415
Additional paid in capital 13,115,939 8,635,939
Allowance for prepaid services
in the form of stock (2,680,000) -
Retained earnings (loss) (12,259,836) (10,115,685)
----------------------------------
Total Stockholders' Equity (1,694,482) (1,430,331)
----------------------------------
TOTAL LIABILITIES AND EQUITY $ 389,620 $ 343,673
==================================
The accompanying footnotes are an integral part of these financial statements.
F2
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
For the six months ending April 30, 2004 and 2003
4/30/2004 4/30/2003
----------------------------------
REVENUE $ 421,730 $ 697,570
- -------
COST OF SERVICES 273,708 494,681
- ----------------
----------------------------------
GROSS PROFIT OR (LOSS) 148,022 202,889
- ---------------------- ----------------------------------
EXPENSES
General and administrative 2,173,321 494,148
Research and development 66,946 105,997
----------------------------------
TOTAL EXPENSE 2,240,267 600,145
----------------------------------
OPERATING INCOME (2,092,245) (397,256)
- ---------------- ----------------------------------
OTHER INCOME (EXPENSE)
Other income - gain from litigation 4,000 -
Interest income (expense) - net (55,906) (38,427)
----------------------------------
TOTAL OTHER INCOME (EXPENSE) (51,906) (38,427)
----------------------------------
NET INCOME (LOSS) $ (2,144,151) $ (474,110)
- ----------------- ==================================
Earnings (loss) per share, basic and diluted $ (0.00) $ (0.00)
- --------------------------------------------
Weighted average number of common shares 1,202,484,619 113,809,057
- ----------------------------------------
The accompanying footnotes are an integral part of these financial statements.
F3
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
For the three months ending April 30, 2004 and 2003
4/30/2004 4/30/2003
----------------------------------
REVENUE $ 185,227 $ 303,629
- -------
COST OF SERVICES 104,022 193,735
- ---------------- ----------------------------------
GROSS PROFIT OR (LOSS) 81,205 109,894
- ---------------------- ----------------------------------
EXPENSES
General and administrative 1,630,219 233,429
Research and development 27,656 56,574
----------------------------------
TOTAL EXPENSE 1,657,875 290,003
----------------------------------
OPERATING INCOME (1,576,670) (180,109)
- ---------------- ----------------------------------
OTHER INCOME (EXPENSE)
Other income - gain from litigation 4,000 -
Interest income (expense) - net (36,941) (24,013)
----------------------------------
TOTAL OTHER INCOME (EXPENSE) (32,941) (24,013)
----------------------------------
NET INCOME (LOSS) $ (1,609,611) $ (204,122)
- ----------------- ==================================
The accompanying footnotes are an integral part of these financial statements.
F4
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
As of April 30, 2004 and December 31, 2003
ALLOW
ADDITIONAL FOR RETAINED
COMMON PAR PAID IN STOCK EARNINGS TOTAL
STOCK VALUE CAPITAL COMP. (DEFICIT) EQUITY
------------------------------------------------------------------------------------------------
Balance, December 31, 2002 59,059,057 $ 5,906 $6,307,696 $(153,429) $ (7,486,906) $(1,326,733)
Stock issued in debenture 85,501,001 8,550 302,890 311,440
bond conversion
Stock issued for services 78,000,000 7,800 425,200 433,000
Stock issued for officer
compensation and bonus 271,591,228 27,159 1,600,153 1,627,312
Allowance for deferred
stock compensation on
contract services 153,429 153,429
Net income (loss) (2,628,779) (2,628,779)
------------------------------------------------------------------------------------------------
Balance, December 31, 2003 494,151,286 49,415 8,635,939 - (10,115,685) (1,430,331)
Stock issued for contract
services on Nov. 7, 2003
for a value of $.0051/share 100,000,000 10,000 500,000 510,000
Stock issued for contract
services on Nov. 19, 2003
for a value of $.0055/share 300,000,000 30,000 1,620,000 1,650,000
Stock issued for contract
services on Dec. 30, 2003
for a value of $.006/share 400,000,000 40,000 2,360,000 2,400,000
Allowance for deferred
stock compensation on
contract services (2,680,000) (2,680,000)
Net income (loss) (2,144,151) (2,144,151)
------------------------------------------------------------------------------------------------
Balance, March 31, 2004 1,294,151,286 $129,415 $13,115,939 $(2,680,000) $(12,259,836) $(1,694,482)
================================================================================================
The accompanying footnotes are an integral part of these financial statements.
F5
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
For the six months ending April 30, 2004 and 2003
CASH FLOWS FROM OPERATING ACTIVITIES 4/30/2004 4/30/2003
- ------------------------------------
----------------------------------
Net income (loss) $ (2,144,151) $ (435,683)
----------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 25,144 33,213
Compensation in the form of stock 1,580,842 204,571
(Increase) Decrease in accounts receivable (28,448) 7,024
(Increase) Decrease in employee advance (18) 2,030
(Increase) Decrease in prepaid expense - 8,854
(Increase) Decrease in deposits (2,900) -
Increase (Decrease) in payables and accrued expenses 16,012 103,353
Increase (Decrease) in employee loan (5,090) -
Increase (Decrease) in loan from officer 299,167 -
Increase (Decrease) in credit card payable - (4,732)
Increase (Decrease) in officer loan 299,167 -
----------------------------------
Total adjustments to net income 2,183,876 354,313
----------------------------------
Net cash provided by (used in) operating activities 39,725 (81,370)
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Cash paid for equipment (53,403) -
----------------------------------
Net cash flows provided by (used in) investing activities (53,403) -
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from debenture bond - 88,000
----------------------------------
Net cash provided by (used in) financing activities - 88,000
----------------------------------
CASH RECONCILIATION
- -------------------
Net increase (decrease) in cash (13,678) 6,630
Cash - beginning balance 18,306 18,587
----------------------------------
CASH BALANCE (DEFICIT) END OF PERIOD $ 4,628 $ 25,217
- ------------------------------------ ==================================
The accompanying footnotes are an integral part of these financial statements.
F6
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
-------------------------------------------
Industry - Roanoke Technology Corporation (The Company)
- --------
was incorporated December 11, 1997 as Suffield Technologies Corp., its original
name, under the laws of the State of Florida. The Company is headquartered in
Rocky Mount, North Carolina and does business as Top-10 Promotions, Inc. The
Company is engaged in the design, development, production, and marketing of
technology to provide enhanced internet marketing capabilities.
Revenue Recognition and Service Warranty - Revenues
- ----------------------------------------
resulting from technology consulting services are recognized as such services
are performed and paid. A deferred revenue account had been established in the
financial statements during 1999 to account for revenue and costs of revenue to
be recognized in the income statement at the end of the service agreement
period. During February of 2000 the service agreement was changed thus not
requiring a deferred revenue account. Services are most often paid for in
advance of the service being performed. The services performed are completed by
software programs leaving the time when a service is paid for and the time the
service is performed immaterial. The Company has no extended maintenance
contracts and warrants its consulting services to meet the consulting service
contract guarantee. No provision for estimated future costs relating warranties
have been made as these costs have been historically immaterial.
Cash and Cash Equivalents - The Company considers cash on
- -------------------------
hand and amounts on deposit with financial institutions which have original
maturities of three months or less to be cash and cash equivalents.
Basis of Accounting- The Company's financial statements
- -------------------
are prepared in accordance with generally accepted accounting principles. All
costs associated with software development and advancement are expensed as a
cost of sales through an ongoing research and development program.
Property and Equipment - Property and equipment are
- ----------------------
recorded at cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the various classes of assets as follows:
Machinery and equipment 2 to 10 years
Furniture and fixtures 5 t0 10 years
Leasehold improvements are amortized on the straight-line basis over the lessor
of the life of the asset or the term of the lease. Maintenance and repairs, as
incurred, are charged to expenses; betterments and renewals are capitalized in
plant and equipment accounts. Cost and accumulated depreciation applicable to
items replaced or retired are eliminated from the related accounts; gain or loss
on the disposition thereof is included as income.
F7
Long-lived Assets - Long lived assets, including property and
- -----------------
equipment and certain intangible assets to be held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of the assets may not be recoverable. Impairment losses
are recognized if expected future cash flows of the related assets are less than
their carrying values. Measurement of an impairment loss is based on the fair
value of the asset. Long-lived assets and certain identifiable intangibles to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
Intangibles - Intangibles principally include core
- -----------
technology in the form of software programs and are amortized over their
estimated lives of primarily 3 to 5 years, existing organization costs are
being amortized by the straight-line method over 5 years.
Research and Development - Research and development costs
- ------------------------
incurred in the discovery of new knowledge and the resulting translation of this
new knowledge into plans and designs for new services, prior to the attainment
of the related products' technological feasibility, are recorded as expenses in
the period incurred.
Income Taxes - The Company utilizes the asset and
- ------------
liability method to measure and record deferred income tax assets and
liabilities. Deferred tax assets and liabilities reflect the future income tax
effects of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
are measured using enacted tax rates that apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
Fair Value of Financial Instruments - The Company's
- -----------------------------------
financial instruments include cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and liabilities to banks and shareholders.
The carrying amount of long-term debt to banks approximates fair value based on
interest rates that are currently available to The Company for issuance of debt
with similar terms and remaining maturities. The carrying amounts of other
financial instruments approximate their fair value because of short-term
maturities.
Earnings Per Share - Basic earnings per share ("EPS") is
- ------------------
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period as required
by the Financial Accounting Standards Board (FASB) under Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Shares". Diluted EPS reflects
the potential dilution of securities that could share in the earnings.
Concentrations of Risk - Financial instruments
- -----------------------------
which potentially expose The Company to concentrations of credit risk consist
principally of operating demand deposit accounts. The Company's policy is to
place its operating demand deposit accounts with high credit quality financial
institutions.
No customer represented 10 % or more of The Company's total sales as of the
current reporting period.
The Company has a concentration of revenue dependency on a limited number of
services.
F8
Stock-Based Compensation - In accordance with the
- ------------------------
recommendations in SFAS No. 123, "Accounting for Stock-Based Compensation,"
("SFAS No. 123"), The Company's management has considered adopting this optional
standard for disclosure purposes, along with Accounting Principles Board opinion
no. 25. The Company may consider using full implementation of SFAS No. 123 at a
future date.
2. Going Concern Uncertainties:
--------------
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company has suffered losses from operations and may require additional
capital to continue as a going concern as The Company develops its new markets.
Management believes The Company will continue as a going concern in its current
market and is actively marketing its services which would enable The Company to
meet its obligations and provide additional funds for continued new service
development. In addition, management is currently negotiating several additional
contracts for its services. Management is also embarking on other strategic
initiatives to expand its business opportunities. However, there can be no
assurance these activities will be successful. There is also uncertainty with
regard to managements projected revenue being in excess of its operating
expenditures for the fiscal year ending October 31, 2004.
Items of uncertainty include the Company's liabilities with regard to its
payroll tax liability in excess of $700,000 and its Small Business
Administration loan with a principal balance of $270,807 plus accrued interest.
The Company is currently in default of these liabilities and has negotiated
resolution of these matters. Should the Company default on these negotiated
payments, there is substantial doubt as to the ability of the Company to
continue as a going concern.
On December 25, 2003 the Company negotiated an installment agreement with the
Internal Revenue Service with regard to its payroll tax liability. The agreement
calls for payments of $5,000 per month for 48 months with a balloon payment for
the balance owed at the end of that period. The Company's President, Dave Smith,
signed for personal liability of the Trust Fund portion in the amount of
$321,840 plus penalties and interest should the Company default on these
payments. Should the Company default on these payments and any other current tax
compliance, the Company's property can be taken to satisfy the liability.
During the year ended October 31, 2003, the Company often remained current with
its monthly payment for its Small Business Administration loan. OF the $270,807
balance owed, the Company has a past due balance of $131,150. The lender holds
the Company's furniture and equipment as collateral for this loan. An agreement
was reached with Aurora Loan Services on May 26th 2004 to bring the account up
to date. The company will make payments of $10,838.81 per month until such time
as the account is no longer past due.
3. Accounts Receivable and Customer Deposits:
------------------------------------------
Accounts receivable historically have been immaterial as The Company's policy is
to have the internet services provided paid for in advance. As of the balance
sheet date there were no deposits paid in advance.
4. Use of Estimates:
-----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F9
5. Revenue and Cost Recognition:
-----------------------------
The Company uses the accrual basis of accounting for financial statement
reporting. Revenues are recognized when services are performed and expenses
realized when obligations are incurred.
6. Accounts payable and accrued expenses:
--------------------------------------
Accounts payable and accrued expenses consist of trade payables, accrued
interest, accrued payroll and payroll taxes created from normal operations of
the business.
7. Long-term debt:
---------------
Long - term debt consists of:
On May 31, 2002, The Company entered into a stock purchase agreement which was
comprised of convertible debenture bonds with attached warrants. The bonds
provide interest in the amount of 12% per year. The offering involved attached
warrants for the purchase of 3,600,000 shares. The total offering is in the
amount of $600,000 of which the agreement was considered modified and now has a
total balance loaned in the amount of $740,000. The outstanding balance for
these bonds is $393,000 plus accrued interest. The Company has been negotiating
the retirement of these bonds anticipating replacement funding availability. In
these negotiations the bond holders feel the company has not complied with the
bond agreement for the conversion of the remaining balance into common stock.
Presently litigation is underway in this matter.
On November 7, 2000, The Company entered into a loan agreement with First
International Bank, Hartford, CT. The U.S. Small Business Administration is the
guarantor on this loan in the amount of $290,000. The initial interest rate, a
variable rate, was 11.50% per year and has since been renegotiated with Aurora
Loan Services, Inc. to 8.50%. The note was originated with a term of seven years
with a late fee of up to four percent of the unpaid portion of the regularly
scheduled payment. The President of The Company maintains a life insurance
policy as required by the loan agreement and has used personal as well as
Company assets as collateral. The Company is currently in 22 months in default
on the note and is currently renegotiating terms in order to prevent foreclosure
of the note payable. The Company has been maintaining the current monthly amount
as payments.
Aggregate maturities of long - term debt over the next five years are as
follows:
For the year ended October 31, 2003
YEAR AMOUNT
2004 164,421
2005 36,222
2006 36,424
2007 42,909
2008 46,701
F10
8. Operating Lease Agreements:
---------------------------
In January of 2004, The Company paid $10,000 to buy out its lease contract and
move to a less expensive building in Rocky Mount, NC. The new lease is for 5
years and calls for monthly payments of $3,500 for the first year, $4,000 for
the second and third years, and $4,500 for the fourth and fifth years. The lease
contract also calls for The Company to pay for any leasehold improvements.
The Company also leases its phone systems, internet lines and various equipment.
The lease terms are month to month leases and others are longer term that are
upgradable. For this reason, The Company considers all of these types of lease
arrangements as operating. Currently the lease costs are at $54,000 for line
services and $23,000 for equipment rental per year and shown as part of cost of
sales.
9. Stockholders' Equity:
---------------------
Preferred Stock
- ---------------
The Company has been authorized 10,000,000 shares of preferred stock at $.0001
par value. None of these shares have been issued and the limitations, rights,
and preferences were yet to be determined by the Board of Directors.
Common Stock
- ------------
The Company has been authorized 5,000,000,000 shares of common stock at $.0001
par value. The Company amended its articles of incorporation effective October
31, 2003 for this number of shares authorized. The Company had originally
authorized 150,000,000 common shares at its inception.
On November 7, 2003 the company entered into a consulting Agreement with Barry
Clark. As compensation, the Company Issued 100,000,000 common shares for a value
of $510,000, or $.0051 per share. The term of the agreement is one year and the
compensation for this agreement will be ratably charged to expense over the term
through an allowance account set up in the stockholders' equity section of the
financial statements. During the term of the this agreement, consultant shall
provide advice with the Company concerning management of sales and marketing
resources, consulting, strategic planning, corporate organization and structure,
and other consulting services.
On November 19, 2003 the Company entered into a consulting agreement with Tom
Bojadzijev. As compensation, the Company issued 300,000,000 common shares for a
value of $1,650,000, or $.0055 per share. Also, on December 30, 2003 the Company
entered into an additional consulting agreement and issued 400,000,000 common
shares for a value of $2,400,000, or $.006 per share. The terms of these
agreements is one year from the date of inception and the compensation for these
agreements will be ratably charged to expense over the term through an allowance
account set up in the stockholders' equity section of the financial statements.
During the term of these Agreements, Consultant shall provide advice to,
undertake for and consult with the Company concerning management, marketing,
consulting, strategic planning, corporate organization and structure, financial
matters in connection with the operation of the businesses of the Company,
expansion of services, acquisitions and business opportunities, and shall review
and advise the Company regarding its overall progress, needs and condition.
During the fiscal year end October 31, 2003, the Company converted debenture
bond principal and interest into 85,501,001 common shares for a value of
$311,440.
On October 27, 2003 the Company issued 270,000,000 restricted common shares to
David Smith, President, in compliance with his employment agreement for a value
of $1,620,000, or $.006 per share. The shares represent a bonus for services
rendered and consideration for extension on his employment agreement as amended
on October 27, 2003.
F11
On September 18, 2003 the Company issued 277,960 restricted common shares to
David Smith, President, in compliance with his employment agreement for a value
of $1,140, or .0041 per share. The employment agreement bonus term is 5 years
from the date the agreement was amended, October 27, 2003.
On April 8, 2003 the Company issued 1,313,268 restricted common shares to David
Smith, President, in compliance with his employment agreement for a value of
$6,172, or .0047 per share. The shares represent a retroactive and continuing
bonus whereby the amended employment agreement calls for a stock bonus of 1% of
the outstanding common shares of the Company determined each year on December
31. The employment agreement bonus term is 5 years from the date the agreement
was amended, October 27, 2003.
On February 15, 2003 the Company entered into a consulting agreement with Byron
Rambo to have assistance with the negotiations with the Internal Revenue Service
regarding its past due payroll tax liability. As compensation, the Company
issued 1,000,000 shares of common stock for a value of $12,000 or $0.012 per
share, the trading value of the stock the day the agreement was entered into.
During the year, 2003, the Company entered into consulting agreements with Barry
Clark to provide advice to undertake for and consult with the Company concerning
management of sales and marketing resources, consulting, strategic planning,
corporate organization and structure, financial matters in connection with
connection with the operation of the businesses of the Company, expansion of
services, acquisitions and business opportunities, and shall review and advise
the Company regarding its overall progress, needs, and condition. The following
lists the compensation in the form of common stock provided by the agreements:
on January 29, 2003 7,000,000 shares for $98,000 or $0.014 per share, on March
31, 2003 14,000,000 shares for $64,000 or $0.0046, on June 12, 2003 14,000,000
shares for $77,000 or $0.0055 per share, on September 9, 2003 14,000,000 shares
for $70,000 or $0.005 per share and on October 3, 2003 28,000,000 shares for
$112,000 or $0.004 per share. All shares were valued at the trading value of
common shares on the dates that the agreements were entered into.
During the fiscal year end October 31, 2002, the Company converted debenture
bond principal and interest into 4,321,460 common shares for a value of $47,172.
On October 28, 2002 the Company entered into consulting agreements with Nicole
Leigh Van Coller, John A. Palmer, Jeremy Leigh Van Coller, Christopher Ebersole
and Mary Gimmelli for financial consulting services over a six month term. As
compensation, the Company issued 12,000,000 shares of common stock for a value
of $156,000. The shares were registered on Form S-8 with the U.S. Securities and
Exchange Commission.
On January 7, 2002 the Company entered into a settlement agreement regarding
litigation. The Company agreed to issue 100,000 shares of common stock for a
value of $17,000.
On February 15, 2002 the Company entered into a consulting agreement for
services regarding tax representation with Byron Rambo. The Company issued
700,000 shares of common stock for a value of $31,920. The shares were
registered on Form S-8 with the U.S. Securities and Exchange commission.
On February 22, 2002 the Company entered into a settlement agreement regarding
litigation. The Company agreed to issue 2,000,000 shares of common stock for a
value of $140,000 and a payment in cash of $20,000. The shares will be issued in
amounts of 500,000 each six months until expired. The Company also issued stock
options for the purchase of 2,000,000 shares of common stock in the amount of
$.04 per share with an expiration date of 20 years from the date of the
agreement.
On April 4, 2002 the Company entered into a consulting agreement with Nicole
Leigh Van Coller for financial consulting services. As compensation, the Company
issued 1,000,000 shares of common stock for a value of $120,000. The shares were
registered on Form S-8 with the U.S. Securities and Exchange commission.
F12
On August 14, 2001, the Company received proceeds of a loan from the Company's
President in the amount of $20,000 with a provision of conversion of the loan to
20,000,000 shares of restricted common stock after a 15 day period if not
re-payed. The loan was converted by the Company as called for in the agreement
for a value of $20,000.
On August 27, 2001, the Company issued 2,500,000 shares of common stock as
compensation for a one year consulting contract valued at $52,500. The
compensation is amortized to expense over the contract term from an allowance
account as can be reviewed in the statement of equity.
During the quarter ended July 31, 2001, the Company filed S-8 stock
registrations for consulting services for a value of $364,534 and the issuance
of 3,519,000 common shares. Of these shares, 2,000,000 common shares per the
agreement call for the purchase of these shares at a value of a 40% discount on
the bid price when purchased. The discount has been accounted for as an expense
for consulting services. The term of services per the registrations range from
five months to a year from the contract agreement date. The stock has been
accounted for as issued and an allowance account has been set against this stock
account to amortize the costs over the term as an expense over the service term
as can be reviewed in the statement of equity.
On April 12, 2001, the Company issued 5,200,000 shares of common stock to the
president of the Company valued at market price in the amount of $812,240. These
shares were issued in accordance with the compensation agreement.
On March 15, 2001, the Company elected a 7 for 1 reverse stock split. The
statements of operations have been adjusted to reflect this split with the
earnings per share calculation.
During the quarter ended January 31, 2001, The Company filed an SB-2 filing with
the U.S. Securities and Exchange Commission. The filing called for 2,000,000
common shares to be offered at a price of $.05 per share. 1,000,000 common
shares have been sold for cash and 1,000,000 (142,857 after the 7 for 1 reverse
stock split) shares were issued for services.
During the period ending October 1998, the Board of Directors issued 1,525,000
shares of restricted common stock to The Company's officer's, and legal counsel
in exchange for services, and issued 500,000 shares of restricted common stock
in the acquisition of Top-10 Promotions, Inc.
In addition to the restricted shares issued, The Company sold common stock
through two separate private offerings during the period. In the initial
offering 800,000 shares were sold each at a price of $0.025. In the second
offering 1,000,000 shares were sold each at a price of $0.05.
On October 15, 1998, the majority shareholders of The Company undertook a
Regulation - D, Rule 504, offering whereby it sold 2,000,000 shares of common
stock, $.0001 par value per share or an aggregate of $200,000. In addition, each
investor in the offering received an option to purchase, for a twelve month
period commencing on the date of this offering, an additional one share of The
Company at $1.00 per share for each eight (8) shares purchased in the original
offering (or $250,000). In addition, each investor received an option to
purchase for an eighteen month period commencing on the date of this offering an
additional one (1) share of The Company for each 8.88 shares previously
purchased at $2.00 per share or an aggregate of 225,000 shares (or $450,000).
The Company also approved of the investment by Arthur Harrison & Associates in
the offering provided that such investment in The Company was in lieu of monies
owed to Arthur Harrison & Associates by The Company for two (2) promissory notes
dated September 22, 1998 and October 10, 1998. Further more, Arthur Harrison &
Associates agreed to waive its rights to any interest on promissory notes.
F13
10. Acquisitions:
-------------
On March 30, 1999 The Company acquired assets of Offshore Software Development
Ltd. ("Offshore") in an exchange of assets for 999,111 shares of The Company
issued to the shareholders of that company. The Company's management has valued
the transaction at $630,000.
The assets included were comprised of four computers valued at $8,000 and two
software programs valued at $622,000. The value of these assets was determined
on the basis of the management's estimation.
An unusual impairment loss of $257,075 was recorded in October of 1999 to
reflect an impairment of the intangible assets resulting from the acquired
"Offshore" assets on March 30, 1999. The impairment resulted from the Company's
revised forecast of the cash inflows expected from intangible assets.
Amortization expenses will drop by $8,583 per month.
Effective May 29, 1998, The Company acquired all the outstanding common stock of
Top-10 Promotions, Inc., consisting of 100 shares, effective. These shares were
redeemed and canceled. The 100 shares of Top-10 Promotions, Inc. were acquired
in exchange for 500,000 "restricted" shares of The Company's common stock issued
to David Smith, the sole shareholder of Top-10 Promotions, Inc. This transaction
has been accounted for using the purchase method of accounting. The value of the
share exchanged by both parties was determined to be $19,500, including a value
of $(114) attributed to the fair value of assets and liabilities, and $19,614 of
goodwill attributed to the method of doing business and the internally developed
software.
Simultaneous with the acquisition, The Company purchased all of the remaining
authorized shares of Top-10 Promotions, Inc. for $50,000 payable at closing and
$17,500 per month payable over an eleven month period as other consideration.
The Company borrowed funds for this transaction and later, upon agreement with
the lender, converted a portion of the amount due as capital contributed to The
Company.
Also, the former owner of Top-10 Promotions, Inc. was given the right to borrow
up to 25% of retained earnings of Roanoke Technology Corporation in fiscal year
1998 or the first two quarters of fiscal 1999. Such borrowings shall be secured
by his restricted stock received in the acquisition at a 75% discount value to
market. Repayment shall be for a two- year period at a 5% annual interest rate.
The Company also entered into an employment contract with the former owner of
Top-10 Promotions.
11. Employment Contract and Incentive Commitments:
-----------------------------------------------
The Company has entered into a five year employment
contract with the former owner of Top-10 Promotions as amended on August 22,
2000, April 12, 2001 and October 27, 2003.
As amended on October 27, 2003, the contract provides for a salary of $150,000;
a stock bonus of 270,000,000 restricted common shares; a stock bonus of
1,000,000 common shares per year for each year that the Company generates a
profit during the five year term; quarterly bonus of 30% of the net income
before income tax of The Company; receive up to one 1% of the issued and
outstanding shares of the Company which amount will be determined as of December
31st of each year; an anti dilution clause that the employee shall be issued
additional shares to ensure that he retains at least 51% of the issued and
outstanding shares of the Company; standard non-competition clause during this
term and for a period of 2 years after; automatic renewal of the employment
agreement for additional one year terms (provided he is not in default under the
employment agreement) after the 5 year term of the contract from October 27,
2003.
On November 1, 1998 The Company's management approved the issuance of 750,000
shares of restricted common shares of The Company to the former owner of Top-10
Promotions for attaining gross revenues in excess $200,000.00 or more in sales
for the first three month period of 1999. The shares have been issued at a
market value of $1,181,250. An additional 1,500,000 shares of restricted were
issued in accordance with the revised employment agreement during the year ended
October 31, 2000 for a value of $900,000.
F14
12. Deferred Tax Assets and Liabilities:
------------------------------------
The Company accrues payroll and income taxes. The Company, currently a
C-Corporation, accounts for income taxes in accordance with Statements on
Financial Accounting Standards 109. As of October 31, 2003, The Company had a
deferred tax asset in the amount of approximately $1,697,674 that is derived
from a net operating tax loss carryforward of $8,488,373. A portion of this
carryforward is associated with stock compensation to officers and is deductible
for tax purposes when the stock is sold by the officers. The deferred tax assets
will expire during the years ending October 31, 2013 through 2023 if not used to
offset taxable income. There is uncertainty about whether the Company will be in
a position of using these tax assets therefore an allowance has been set up to
offset these assets.
13. Required Cash Flow Disclosure for Interest and Taxes Paid:
----------------------------------------------------------
The Company paid interest in the amount of $12,100 during the fiscal year ended
October 31, 2003. The Company had no income tax payments due and did not pay any
income tax amounts during the period.
14. Litigation, claims and assessments:
-----------------------------------
There are various lawsuits and claims pending against The Company. Management
believes that any ultimate liability resulting from those actions or claims will
not have a material adverse affect on The Company's results of operations,
financial position or liquidity.
On October 15, 2003 a default judgment against the Company was entered in favor
for the plaintiff, Gordon & Rees, LLP, in the amount of $106,720 plus attorney
fees of $26,680. The suit was over legal fees incurred by the Company and the
fees are included in the Company's accounts payable balance. The fees were
incurred during the year ended October 31, 2002. On May 27, 2004 the Company
entered into a settlement agreement whereby the Company would pay $19,000 by
June 11, 2004 to allow a dismissal of the lawsuit.
On February 20, 2003 a complaint, Sprint Communications Company Limited
Partnership vs. Roanoke Technology Corp., was filed in the State of North
Carolina, County of Halifax Superior Court Division. The complaint asserts that
The Company is indebted to the plaintiff for a total of $179,150.16 and costs of
the action brought forward. The Company has filed a counter-claim in response to
this action. On April 8th, 2004 the Company entered into a settlement agreement
whereby the Company would pay $10,000 and dismiss the counter-claim to allow a
dismissal of the lawsuit.
15. Condensed consolidating financial statements:
---------------------------------------------
RTCHosting Corp (RTCH) is a wholly owned subsidiary of The Company. RTCH was
incorporated on June 12, 2000 in the state of North Carolina. RTCH has 1,000
common shares authorized with no par value and 100 common shares outstanding.
The Company has determined that separate financial statements and other
disclosures concerning RTCH are not material to investors. RTCH was formed to
hold the copyrights of an on line procurement system being developed by The
Company. The Company has expensed all research and development costs. The only
costs incurred by RTCH has been its incorporation and start-up costs which have
been expensed in the amount of $3,050. RTCH currently has no material values of
assets, liabilities or equity.
RFQHosting Corp (RFQ) is a 35% owned joint venture in Roanoke Online, LLC. The
Company and Roanoke Energy Resources, Inc., a subsidiary of Roanoke Electric
Cooperative, entered into a joint venture whereby the Company, through RFQ,
receives 35% of the gross revenues of Roanoke Online, LLC, a business to
business online procurement service. The Company is responsible for providing
software maintenance and support personnel. Roanoke Energy Resources, Inc. is
responsible for the day to day management and marketing of RFQ.
F15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
2nd Quarter 2004 Compared with 2nd Quarter 2003
Revenues for the second quarter of fiscal years 2004 and 2003 were $185,227 and
$303,629, respectively. Depreciation expense decreased to $25,144 from $33,213
because of certain assets that have been completely depreciated. Research and
development costs decreased to $27,656 from $56,574.
LIQUIDITY AND CAPITAL RESOURCES
Cash inflows from operating activities were $39,725 for the six months ended
April 30, 2004 as compared with cash outflows of ($81,370) in the prior year's
period. Cash outflows from investing activities were ($53,403) as compared with
($0) in the prior year's period.
Outlook
During the past six months, we have concentrated our efforts on minimizing
company expenses and focusing the direction of the company on our affiliate and
sales leads efforts. The long term projections for this endeavor appear to be
substantially more favorable than our current main primary source of income,
Top-10 Promotions.
Top-10 Promotions sales were down over last six months, prompting our decision
to concentrate more attention on the affiliate and sales leads programs. We are
making use of the personnel and technology we have in place for Top-10
Promotions in developing these new programs. By doing this, we have minimized
research and development expenses as well as training expenses for new
employees. Once we feel comfortable with the progress of the current employees,
we plan on expanding our sales and support staff to accommodate the growth of
these programs.
The expansion of our staff will help meet the requirements of our inducement
agreement with Carolinas Gateway Partnership. The purpose of this partnership is
to add incentive for RTC to relocate its Headquarters operations in the Nash
County, NC area. CGP has offered a cash inducement to RTC once the attainment of
target employment goals are met. These funds are to assist in the leasing,
improvement, expansion, upfitting and equipping of RTC Headquarter facilities.
The cash incentives offered in this partnership will help offset the cost of the
companies headquarters relocation and are indicative of the willingness of the
Nash County Community to work with our company.
Our consultant, Graceleyne Financial Inc., is in the process of acquiring a $12
million corporate bond sale for RTC. Upon completion of the bond issuance, RTC
plans to use a portion of the money to eliminate several debts incurred by the
company, initiate a buyback of RTC stock, and increase research and development
substantially over the coming years.
We estimate our expenses to be in the neighborhood of $1,500,000, excluding
non-cash compensation in the form of stock. We are expecting to see revenue
reach $1.8 million. If our revenue projections remain accurate, Roanoke
Technology Corporation will post its first profit since going public.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ---------------------------------------------------------------------
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse changes in market prices and
rates. We are exposed to market risk because of changes in foreign currency
exchange rates as measured against the U.S. dollar. We do not anticipate that
near-term changes in exchange rates will have a material impact on our future
earnings, fair values or cash flows. However, there can be no assurance that a
sudden and significant decline in the value of European currencies would not
have a material adverse effect on our financial conditions and results of
operations.
Our short-term bank debt bears interest at variable rates; therefore our results
of operations would only be affected by interest rate changes to the short-term
bank debt outstanding. An immediate 10 percent change in interest rates would
not have a material effect on our results of operations over the next fiscal
year.
Item 4. Controls and Procedures
- --------------------------------
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and procedures
that is designed to provide reasonable assurance that information, which is
required to be disclosed, is accumulated and communicated to management timely.
Under the supervision and with the participation of management, the Certifying
Officers evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)]
under the Exchange Act) within 90 days prior to the filing date of this report.
Based upon that evaluation, the Certifying Officers concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relative to our company required to be disclosed in our
periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officers have indicated that there were no significant changes in
our internal controls or other factors that could significantly affect such
controls subsequent to the date of their evaluation, and there were no such
control actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Gordon & Rees, LLP v. Roanoke Technology Corp.; Top-10 Promotions, San Francisco
County Superior Court, Case Number CGC-03-423362. The complaint was filed on
August 12, 2003 and was "purportedly" served on September 12, 2003. On October
15, 2003, we received a Notice of Intention to Enter Default and Default
Judgment. Plaintiff has not been able to provide the court documentation to
support a default judgment. The default judgment was for $106,719.64 plus 10% of
interest from 8/26/02 and attorney's fees of $26,679.91. On May 27, 2004 we
entered into a settlement agreement whereby we would pay $19,000 by June 11,
2004 to allow a dismissal of the lawsuit. Such amount was paid and this case was
settled in full.
Sancor Industries Ltd. v. Sun-Mar Corporation, Top-10 Promotions, Inc. and
Roanoke Technology Corp. Ontario Superior Court of Justice, Court File No.
99-CV-172600 CMA. A judgment was granted against us for unauthorized insertion
of the plaintiffs trademarks in our mega-tags. The specific judgment amount was
not listed.
On February 20, 2003 a complaint, Sprint Communications Company Limited
Partnership vs. Roanoke Technology Corp., was filed in the State of North
Carolina, County of Halifax Superior Court Division. The complaint asserts that
we are indebted to the plaintiff for a total of $179,150.16 and costs of the
action brought forward. We have filed a counter-claim in response to this
action. Our legal counsel has not determined the likeliness that the plaintiff
will be successful with the complaint. This matter was settled in full for
$10,000.
AJW Partners, LLC. AJQ Offshore, Ltd., AJW Qualified Partners, LLC and New
Millenium Capital Partners II, LLC v. Roanoke Technology Corp., Supreme Court of
the State of New York, Index No. 04-600698. The complaint was filed on March 16,
2004 and served on March 19, 2004. The lawsuit was commenced based upon stock
purchase agreement comprised of convertible debenture bonds with attached
warrants with the plaintiffs. The plaintiffs claim that a total of $775,000 is
still owed under the convertible debentures. We have put in an answer and a
counterclaim to this action and are currently preparing a response to motion to
dismiss our counterclaim.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits
33.1 Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
33.2 Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
b. Reports on Form 8-K.
On February 25, 2004 we filed a Form 8-K reporting under Item 5 - Other
Events our new office location.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROANOKE TECHNOLOGY CORP.
By: /s/ David L. Smith
-------------------------------------
DAVID L. SMITH
Chairman of the Board of Directors
CEO and CFO
Dated: June 14, 2004